Initial public offerings are often extravagant affairs. But even by their hyperbolic standards, with bankers desperately drumming up interest, the Saudi royal family went the extra mile when it sold shares in oil giant Aramco. But it didn’t work at the time – and it isn’t working now.
On the eve of the 2019 IPO, one of the most senior Saudi royals warned “those who have not subscribed” to the listing would be left “chewing their thumb” with regret. The $2 trillion valuation the Saudis sought would materialize in “a few months.” The message: buy now or miss out.
Wall Street didn’t buy, and it hasn’t missed out. Over the last five and a half years, Aramco stock has underperformed all its peers. Now, it’s taking on debt to cover its dividend; its shares have fallen to a five-year low and volume is falling, a sign that local and foreign investors are shunning the stock.
On a total return basis, including re-invested dividends, Aramco has delivered a paltry 16% since its IPO; the worst among a selection of the world’s largest companies, according to data compiled by Bloomberg. Even Russia’s sanctioned Rosneft Oil Co. PJSC, has done better. Exxon Mobil Corp., Chevron Corp., and Shell Plc have all delivered total returns of more than 50%.
The problems are compounded by a sense among global investors that Aramco doesn’t have a plan to revive its shares. Listen to the most recent conference calls with shareholders, and, if anything, one leaves with the impression the company feels it is getting the job done.
“We believe we offer a very attractive investment proposition,” Chief Financial Officer Ziad Al-Murshed told investors earlier this month. That’s a rather courageous statement when the share price is at its lowest level since March 2020 when Covid-19 sent Brent crude close to $20. When I approached Aramco to discuss the situation, the company asked for a list of questions; after I sent it, it said it didn’t want to comment.
In the first six months of 2025, Aramco reported free cash flow of $34.4 billion, insufficient to pay the $42.7 billion dividend during the same period. To bridge the gap, the company sold bonds, something it can do with ease thanks to a low leverage ratio. The Saudi state owns about 97% of the stock – thus, it is the biggest beneficiary of the dividends.
It’s notable that Aramco, which claims it’s the world’s lowest cost oil producer, couldn’t cover its dividend even after Brent averaged more than $70 a barrel from January to June, hardly a low price by any historical norm. Imagine the trouble if oil prices fell further. So far in the second half, Brent has averaged $69 a barrel. Granted, Aramco is now pumping more, offsetting some of the price weakness, but still it is difficult to see an upward path for its equity.
To thrive, Aramco needs higher oil prices – and higher production. It needs also to cut operating costs. While companies like Shell and Chevron have announced belt-tightening exercises, shedding thousands of staff, Aramco is increasing overhead. A decade ago, it employed about 65,000 people; today, its headcount has risen to about 75,000, according to the company’s annual reports. The company’s spending in new projects is also huge, particularly considering that it has abandoned plans to boost its maximum production capacity in the next few years.
The trouble with the Saudi oil giant has always been the valuation. Ever since Saudi Crown Prince Mohammed bin Salman insisted Aramco was worth $2 trillion in 2016, he’s been determined to prove the skeptics wrong. While its market cap peaked at $2.42 trillion as oil prices spiked shortly after Russia invaded Ukraine, it’s now about $1.5 trillion — huge by any standard but still a quarter smaller than what the kingdom originally wanted.
The investors who took part on last year’s follow up secondary public offering bought at 27.5 riyals a share and are today nursing paper losses of more than 12%. Whatever metric one looks at, the Saudi oil company offers better value as a credit investment – via its bonds, particularly its 10- and 30-year paper – than as an equity story.
By now, investors have learned that lesson: The kingdom is likely to struggle selling more shares in the future. That would be a big setback for the royal family. Before the IPO, Riyadh talked about the possibility of selling small chunks of Aramco every few years to raise funds. From now on, the kingdom would have to settle for selling debt.
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